Downsizing to aid daughter might not be worth it

Q: I am 58 years old and married. My total household income is less than $50,000. I have no mortgage; however, I do have a line of credit with $130,000 owed. I have a daughter who is a junior away at college. I want to help pay for student loans once she graduates. Do you think I should put my house up for sale and downsize to maybe a condo or town house? My home is probably worth about $250,000 in this market. I am worried that I will never be able to retire. What do you think?

A: I cannot give specific legal or financial advice, but have some general observations. What is the benefit of downsizing? Your house is free and clear, so your only obligation is to pay the yearly insurance premium and the real estate tax. Of course, there is maintenance and upkeep that has to be considered.

Let's assume you can get $250,000 when you sell your house. If you use a real estate agent, you will have to pay a commission, which could range from $12,500 to $15,000. You could try to sell it yourself and save the commission, but you really have to know what you are doing.

Your potential buyer may want concessions from you, such as paying closing costs, or a cash credit at settlement (called escrow in the Western part of the country).

So, bottom line, even if you get the full asking price, after paying off your home equity loan, you will net somewhere in the neighborhood of $100,000. The good news is that if you have lived in the house for two years out of the five years before it is sold, you can exclude up to $250,000 on any gain; or if you are married and file a joint tax return, you can exclude up to $500,000. So, with the price of $250,000, if you meet the use and ownership tests, you will not have to pay any capital gains tax.

Then what? What can you buy that will compare to your present house for $100,000? And actually, with closing costs, you will have to buy something for even less than $100,000.

Bottom line: If you do the math, you will end up worse if you try to downsize. You are blessed with a house that is free and clear. Hopefully, in the years to come, your house will appreciate in value, in which case you may be able to get a higher home equity loan.

Helping your daughter pay her student loans is admirable, but you have to think about your own situation. And besides, Congress is actively looking to curtail student loan interest expenses. Even with its current dysfunctional state, there may be a compromise enacted before the November elections.

My advice: Enjoy your house.

Q: My property is on the high end of an incline. All rainwater drains into my lower neighbor's property. For more than 30 years, all went well until the new owners of the lower property raised their backyard and caused flooding in my backyard. They allowed me to connect to their drain system, which alleviated the problem.

My question is: Can the connection (easement?) be recorded on both property titles? This would preclude any problem in case of a disconnect when property changes ownership.

A: Absolutely. You called the connection an easement. To make sure that an easement is permanent, it must be recorded on both properties. Your neighbor grants the easement and you accept as grantee.

Easements require that there are at least two parties. Since you will benefit from the connection, you are called the dominant estate. Your neighbor who granted the connection/easement is referred to as the servient estate.

You should discuss the matter with your neighbor. Try to agree that you will both retain one attorney who will draft up the easement agreement. The cost of that lawyer will be split equally, and the cost of recording the easement among land records will also be split 50-50.

The easement document should spell out, among other items, who will be responsible for maintenance and repair of the connection. And of course, if the two of you disagree on the terms and conditions of the easement, you will each need to retain separate counsel. Hopefully, that will not be necessary.